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Dud: Sears and Kmart

Eddie Lampert acquired control of Kmart by purchasing more than $1 billion of its debt, which was converted to 51% of the new equity when it emerged from bankruptcy in June 2003. He then used Kmart to buy Sears in March 2005 for $12.3 billion. At the time of the merger, the combined companies had $55 billion in annual revenue. But in fiscal 2013, Sears Holdings (SHLD) managed to generate just $39.9 billion in revenue.

There have been so many chess moves by Lampert in the nine years since the merger it’s almost impossible to tell the players without a score card. For instance, he tightened the company’s grip on Sears Canada (SEARF) in 2010, buying up more than 90% of its shares. In January of this year, he distributed 44.5% of Sears Canada’s shares to SHLD shareholders.

Considering 55% of SHLD is owned by Lampert’s hedge fund, ESL Investments Inc., Lampert ends up owning 50% of Sears Canada. His latest — and greatest — idea to rescue SHLD is to spinoff Lands End and sell its automotive centers, raising as much as $2.5 billion in cash.

As far as I’m concerned, the only people benefiting from this man’s shenanigans are lawyers, accountants and investment bankers. He’s single-handedly ruined two once-upon-a-time iconic retail brands. That’s not how a merger is supposed to work.